Stock option backdating restatements

In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.Backdating does not violate shareholder-approved option plans.Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.The graph below shows the dramatic effect of this new requirement on the lag between the grant and filing dates.To the extent that companies comply with this new regulation, backdating should be greatly curbed.Unless corporate insiders can predict short-term movements in the stock market, my results provided further evidence in support of the backdating explanation.

(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.Remy Welling, a senior auditor at the IRS, was asked to sign the deal in late 2002.Instead, she decided to risk criminal prosecution by blowing the whistle.Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.An example illustrates the potential benefit of backdating to the recipient.

Leave a Reply